Gold Price Forecast: XAU Tanks Hard As Yields, Inflation Fears Climb

Gold Fundamental Forecast: Neutral

  • Gold prices fell hard this week, losing as much as -5.43% from the Tuesday high to the Friday low.
  • While recovery themes remain in full bloom, US yields have continued to climb and inflation expectations are moving, too. The big item on the calendar for next week is the Friday Non-farm Payrolls report, where there’ll likely be extra attention paid to the Average Hourly Earnings portion of the report.

After coming into the week with a bounce, the past four days, and the past two trading days in particular, were brutal for gold bulls. Gold prices gave up more than 5% this week from the Tuesday high down to the Friday low, with FOMC Chair Jerome Powell’s Humphrey Hawkins testimony taking place in that span. And that Friday low should carry an asterisk, as the bearish move involved breaching a major area of chart support on the way to fresh seven-month-lows.

Gold Daily Price Chart: Fresh Seven-Month Low

Gold Daily Chart

Chart prepared by James StanleyGold on Tradingview

At the source of the move was a continued climb in US yields, driven by the fear that positive US economic data may eventually force the Fed to hike earlier than they might’ve hoped. And even if the Fed doesn’t hike, well, inflation fears are running rampant on the back of that positive data; and even despite the in-line PCE print on Friday, the fear of stronger inflation is unlikely to go away anytime soon.

To be clear – there is a disconnect. While inflation data looks mostly tame, and while the Fed appears rather calm around this premise, a number of other events in markets seem to run counter to that. Items like lumber, tin, or even copper are in the midst of massive bullish runs, all setting fresh highs. These are important commodities that are vital to the world’s continued growth.

The fact that raw materials are obviously inflating but the products that they go into aren’t yet showing it, at least in the observed data of CPI and PCE, is disconcerting and is likely at the source of the run higher in US Treasury yields as market participants gear up for what might be around the next corner.

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Monica Kingsley 1 month ago Contributor's comment

Yes, the dip was really hard, and an important support has been reached. Reversing, gold is being pulled by silver, copper and the rest of the crowd to a degree. I though look to the real rates, which are still deeply negative = fuel for gold. Much to talk in the precious metals really...